Home » Eng Finance » H » Heckscher-Ohlin principle

Heckscher-Ohlin principle

The law of comparative advantage had been established by economists as an explanation for the existence and pattem of international trade based on the relative cost advantages between different countries of producing different commodities. The law says nothing about why or how a comparative advantage exists. The Heckscher-Ohlin principle states that advantage arises from the different relative factor endowments of the countries trading. A country will export those commodities that are intensive in the factor in which it is most well endowed. The principle was first put forward by Eli F. Heckscher (1879-1952) in an article published in 1919 and reprinted in Readings in the Theory of International Trade (1949). It was refined by Bergil Ohlin in his Interregional and International Trade (1933). The principle has been developed further by Professor P. A. Samuelson in his factor price equalization theorem.

Reference: The Penguin Dictionary of Economics, 3rd edt.